The Canadian dollar posted phenomenal employment data on Friday, pushing the currency to its strongest level in a month against the US dollar. The official data showed the economy adding 108,300 jobs for the month, more than ten times the average forecast, and being entirely within the full-time job market. The Bank of Canada recently undershot market expectations by only increasing interest rates by 0.5% to 3.75%, and the unexpected jobs surge has fuelled bets than the BoC will have to hike by another 0.5% at the next meeting in December. The figures were so positive that markets barely flinched to the data from a purchasing managers survey, which came in below forecasts and showed economic activity barely expanding month on month. No new data on the economic calendar for today.
Despite US non-farm employment figures, traditionally one of the key and most closely watched metrics of US economic health, rising to 261,000 jobs added in October, showing a robust labour market, the overall rate of unemployment actually inched higher, to 3.7%, and that dose of negativity was all markets needed to take profits on the back of the recent USD strength, and the dollar ended the day significantly weaker than its overnight performance. The outlook remains positive for the greenback though, despite an increasingly fragmented outlook for the US employment sector. This afternoon, two Federal Reserve members are due to speak at a Symposium in Cleveland, but otherwise we expect a quiet day.
The euro also joined in the market renaissance against the US dollar on Friday, but traded sideways against most other peers. European Central Bank President Christine Lagarde gave a hawkish speech at an event hosted by the Bank of Estonia, re-iterating her commitment to hiking interest rates even in the event of a recession. According to Lagarde’s outlook, a contracting eurozone economy would not be enough to tame inflation by itself, and would need to be supported by contractionary monetary policy. This put’s Lagarde at direct odds with the outlook of several eurozone political leaders, and indeed seemed to overlook the caution of ECB executive board member Fabio Panetta, who had warned that areas such as the residential property markets were extremely vulnerable to higher interest rates in worsening economic environment. Today, Lagarde is due to speak again in a pre-recorded video conference in Belgium, and so markets will continue to watch closely to see if her outlook evolves.
The pound followed most majors in recovering some ground against the US dollar on Friday, as speculators took profits amidst the recent bout of sharp USD strength. A report on Friday did show that the construction purchasing managers index (PMI) made a modest increase in the sector, with a 53.2 reading for October- whereby above 50.0 indicates expansion- being a month-on-month growth. However, amidst the context of wider PMI data, which showed that builders reported their first fall in new orders since May 2020, and an all-sector PMI reading dropping to 48.7 from 49.4 the previous month, there is an acceptance amongst markets that the outlook for the UK is drab. No fresh data due out in the first half of this week means that the pound is likely to continue trading in reaction to events elsewhere, at least until Friday, when monthly GDP figures are due.